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Take The Reins

The Shadow Empire That Fuels Amazon’s Dominance

Antitrust regulators looking to curb the megafirm’s abusive practices will have to contend with the vast web of subcontractors and third-party sellers under its control.

Paul Hennessy/Getty Images

By any definition, Amazon is a giant. In the fourth quarter of 2022, it tallied staggering global sales of nearly $150 billion. In the United States, it owns 110 warehouses and employs more than one million people—making it one of the largest private-sector employers in the nation. It is the largest provider of cloud computing services in the world. Yet these figures do not do full justice to the enormity of its power. Like a modern empire, Amazon is hegemonic. Consider the millions of nominally independent sellers on Amazon who are at the mercy of the corporation and subject to its grip. This firm controls far more than what it directly owns or possesses.

With federal antitrust action against Amazon rumored to be coming soon, trustbusters and the public should recognize that merely breaking up the corporation will not be sufficient. Reining in Amazon requires challenging its domination through contracts and surveillance—the tools through which it has supercharged its awesome power. Last month, the Federal Trade Commission proposed to ban noncompete clauses for all workers. This is a welcome and overdue rule that the Open Markets Institute (where, full disclosure, I work), the AFL-CIO, Public Citizen, and many other labor and public interest groups petitioned for in 2019. It is an important move in the right direction, but much more remains to be done against unfair contracts and practices. As Amazon shows, it is several steps ahead. Anti-monopoly enforcers such as the FTC must target Amazon’s extraordinary control of businesses and workers beyond its corporate boundaries.

The bluish-gray Amazon delivery vans are a familiar sight in American cities. Tens of thousands of them are on the road every day. Based on their livery, one could reasonably believe the vehicles are owned by Amazon and their drivers are employees of Amazon, much as UPS owns its iconic brown trucks and employs their drivers.

That inference would be wrong. Amazon’s last-mile delivery is performed, in part, by delivery service partners, or DSPs. The DSPs own the vans and employ the drivers. On paper, they are independent. In practice, though, they acquiesce to comprehensive control by Amazon through a combination of contracts and surveillance. Amazon dictates how and when DSPs deliver what. It effectively controls the delivery drivers, but, by placing a firm—the DSP—between itself and them, sheds the duties and responsibilities of labor and employment law. For instance, Amazon can terminate DSPs at which drivers are seeking to unionize—conduct that would violate the National Labor Relations Act if Amazon directly employed the drivers. (In September 2022, the National Labor Relations Board proposed to expand the definition of “joint employer” to cover such arrangements.) For now, Amazon enjoys, in the words of my colleague Brian Callaci, “control without responsibility.”

The DSPs bear the risks and burdens of entrepreneurship but without the autonomy commonly associated with it. If they lose money delivering packages for Amazon, that is on them. Amazon will not increase their payments to keep them in business. At the same time, these firms have little autonomy or discretion. They function as agents of Amazon and do what it tells them and on its terms. DSPs must meet delivery quotas to keep their contract with Amazon, which compels them to do appalling things such as suspend drivers who stop for bathroom breaks. Although not directly employed by Amazon, DSP drivers certainly experience its power.

Amazon markets being a DSP as an entrepreneurial opportunity offering independence and potential wealth, focusing its efforts on people of color. In reality, becoming a DSP means accepting control and domination.

In addition, Amazon relies on “flex drivers”—an estimated 2.9 million had downloaded the app in the U.S. as of 2021—to deliver packages. It classifies them as independent contractors but tightly controls them through contract and surveillance. As independent contractors, they are not entitled to a minimum wage or overtime pay and cannot form unions. One commentator described the flex system as “Uber for packages.”

This arrangement of control without responsibility is not limited to Amazon delivery. Amazon uses two million third-party sellers to drive its engine of commerce. They sell goods directly to consumers and use Amazon for marketing and (usually) distribution. In most cases, we do not know whether we are purchasing a product from Amazon or one of these sellers. Like DSPs, the sellers are formally independent and outside Amazon’s corporate borders. And just as it does with DSPs, Amazon markets selling on its site as an opportunity for entrepreneurial initiative, independence, and potentially big-time success.

But as with the DSPs, the reality for sellers is cruelly different from what appearances suggest. Amazon dominates the sale of goods online, accounting for somewhere from 50 percent to 70 percent of retail sales on the internet. When looking only at retail platforms open to third-party sellers, Amazon’s dominance is even more pronounced. In online commerce, Amazon has a market share eight times larger than eBay’s and Walmart’s, who are distant followers with only single-digit market shares. Sellers want to be where customers are, and not being on Amazon can mean not being in business.

Amazon’s dominance of digital commerce means its sellers are at its mercy. It can and does suspend sellers for any or no reason at all. They live in constant fear, knowing that their lucrative business may be gone tomorrow because they upset a more powerful rival seller or threatened Amazon’s profits or revenues in some way. Further, sellers are subject to Amazon’s privatized justice system. They can only bring legal claims against the company in arbitration on an individual basis. Amazon prohibits class action lawsuits in which aggrieved sellers can aggregate their claims and have their case decided by a judge or a jury.  

Among its other one-sided terms and conditions, Amazon restricts what sellers can do elsewhere, on their very own sites and non-Amazon platforms. The firm uses “most-favored nation,” or MFN, clauses with sellers that bar them from offering goods for less through other retail channels. If a seller markets a tube of toothpaste for $1.99 on its own site, it must sell it for no more than $1.99 on Amazon. It must do so even though Amazon charges extortionary commissions and fees. In 2022, a sale on Amazon entailed paying the company, on average, 51.8 percent of the final retail price in commissions and fees.

Even though a seller can incur far lower costs on a rival platform, such as Walmart, or through direct sales, it cannot reduce prices there without also reducing them on Amazon while still paying its monopolistic fees. As a result, sellers and customers have much less reason to patronize Amazon’s competitors.

Using MFNs, Amazon robs sellers of their pricing freedom, cements its dominance of online commerce, and perpetuates its power to collect an effective tax averaging more than 50 percent from sellers. The attorneys general of the District of Columbia and California filed suit against Amazon challenging these contractual restraints. (Full disclosure: The Open Markets Institute filed an amicus brief supporting the District of Columbia’s lawsuit.)

Amazon sellers serve, for all intents and purposes, as highly motivated sales representatives for the company, but without the basic legal rights that employed sales reps have. Their economic future requires staying in Amazon’s good graces. Yet for all their inventiveness and diligence, Amazon owes them little. It can suspend them at any time and restricts them from growing their businesses through other channels.

When you take in the fuller picture of Amazon’s empire, and the breadth it’s gained using contracts and surveillance, it becomes glaringly clear that breaking up Amazon is not enough because it exercises such a tight grip over millions of businesses and workers outside its corporate boundaries. The federal government must also target Amazon’s methods of domination. The Federal Trade Commission’s proposed ban on noncompete clauses should just be the first step in a much broader effort. Anti-monopoly enforcers such as the FTC should bar firms like Amazon from surveilling DSP drivers, using MFN clauses with sellers, and generally dominating “independent” actors. Amazon’s web of control must be broken.